Modelling trade and climate change policy: a strategic framework for global environmental negotiators

Abstract

In the past, failure of trade–climate talks might have created negative signs, but international trade actually induces more participation and helps to attain joint agreement. Carbon permit trading has a key role to play in the abatement process. Participation in global multilateral negotiations and a country's self-interest with respect to entering an abatement process depends upon either the scale of climate change damage or the punishment level that affects its economy. Thus, this study assumes N good cases for countries that have substantial emission levels. We analyse the change in utility function through a business-as-usual scenario for both group and individual country levels. The model designed in this study examines the data on emissions and gross domestic product (GDP) for selected developing and developed countries and the rest of the world. The data calibrations are similar to the previous studies. However, this study extends the model to a strategic level at which countries can choose coalition partners to undertake abatement for mutual benefits, considering the terms of trade. The results possess strong trade–environment policy options and help them to reach certain multilateral agreement.